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A Simple Example of the Grangaard Strategy

By JLP | August 28, 2006

I reviewed Paul Grangaard’s The Grangaard Strategy last week. You can read my review here. In that review I gave a rundown of what the book was about. Today I want to give you an example of what the strategy might look like during retirement. This is only meant to serve as an example.

Here are the assumptions I made:

1. Desired income at retirement is $50,000 in today’s dollars.

2. Retirement is 20 years away.

3. Inflation of 3% both before and during retirement.

4. A yield of 5% on the fixed income portion of the portfolio and an 8% return on the stock portion of the portfolio.

5. 40% of the total portfolio at the beginning of retirement is dedicated to the income ladder.

The results are laid out below (with column explanations below):

Retirement

The second column is the desired income adjusted for inflation. The third column is the desired income DISCOUNTED at the expected yield on fixed income investments (5.00%). The total in the third column in the shaded area is the total amount of capital needed to fund the first ten years of income ($829,454). The rest of the portfolio ($1,244,182) is invested in a portfolio of stocks growing at 8% per year.

I like the idea of looking at retirement in two parts: income and growth from investments. I also like looking at retirement in 10-year holding periods, as they reduce portfolio risk.

That’s not to say that this strategy is without risks:

1. Inflation could be a lot higher than 3%, which would mean more capital would have to go into the income ladder or a reduction in lifestyle.

2. The yield could be lower than 5%, which also would mean more capital dedicated to the income ladder or a reduction in lifestyle.

3. The return on the investment portfolio could be less than 8%, which would mean a smaller capital base for future income needs.

Despite the risks, we have to keep in mind that there are risks with all strategies. I like this strategy and think it has a lot of merit. I’ll be talking more about it in the future. If you have any questions, comments or you think I missed something, let me know by leaving a comment.

Topics: Books, Retirement Planning | 3 Comments »


3 Responses to “A Simple Example of the Grangaard Strategy”

  1. AllFinancialMatters » Blog Archive » Friday’s Reader’s Question - 401(k) Says:
    January 12th, 2007 at 11:09 am

    […] 1. Read Paul Grangaard’s The Grangaard Strategy. I reviewed the book last year and also wrote a follow-up post about the strategy. These two posts will give you an idea of what the strategy is. […]

  2. AllFinancialMatters » Blog Archive » A 2% Withdrawal Rate For Retirement? Says:
    January 17th, 2007 at 1:13 pm

    […] A Simple Example of the Grangaard Strategy […]

  3. CAG Says:
    June 25th, 2009 at 4:57 am

    What is the value of the begining investment asset base?

Comments